At worst, the COF report likely will be viewed as neutral by the market, though the case can be made for bullishness, too.
So far relentless demand for grass cattle should be underpinned this week by other supportive fundamentals, including Friday’s monthly Cattle on Feed (COF) report as well as the estimate of Canadian cattle numbers earlier last week.
At worst, the COF report likely will be viewed as neutral by the market, though the case can be made for bullishness, too. According to USDA, cattle on feed Feb. 1 was 11.8 million head, 2% more than a year earlier. The average estimate ahead of the report was about 2.5% more.
Placements during January were 1.85 million head, 2% less than a year earlier. The average estimate ahead of the report was 1.2% less.
Likewise, marketings in January were 1.82 million head, 2% more than a year earlier. Ahead of the report, the average industry estimate was for marketings to be about even with 2011.
So, compared to the estimates, fewer cattle on feed, fewer placed and more marketed.
As for the Canadian numbers, plenty of folks are scratching their heads. According to the report, the beef cowherd was 1% less Jan. 1 (4.23 million head), despite other data indicating more beef heifers were retained for beef replacement last year (the estimate for heifers this year is 4% more at 554,000 head), while Canadian cow slaughter and beef exports were also less year-over-year. Even with the apparent discrepancy, there is nothing to suggest there are more cows lurking on either side of the border than folks thought.
For the record, the combined U.S.-Canada beef cowherd is estimated at 3% less than a year earlier at 34.1 million head. The combined total cattle inventory is estimated at 103,3 million head, 2% less.
John Michael Riley, agricultural economist at Mississippi State University, cited in last week’s In the Cattle Markets several reasons that should temper expansion, despite plenty of optimism in the cow-calf sector.
“First, cull cattle prices remain strong in a similar vein as calf prices,” Riley says. “This phenomenon is in competition with expansion signals. Second, any expansion will come at a cost. Whether heifers are developed on the farm or purchased, these replacement females are/will be costly. These costs will have to be absorbed by the producer or financed by an outside source. Third, with these record prices comes an increased level of market risk, which creates its own set of issues with respect to the high costs of expansion.”
Also heading into this week, though it can obviously change quickly, markets overall have the opportunity to ride last week’s positive macroeconomics, buoyed by consumer optimism.
“Consumers have shrugged off concerns about rising gas prices, the European crisis, and election-year politics, preferring to focus on the favorable impact of job growth,” Richard Curtin, Surveys of Consumers (SC) chief economist, said Friday. “A potential threat is that consumers expect too much too soon. Improved job prospects may entice many more people to seek work, easily outstripping the number of new jobs created. While election-year politics typically raise economic prospects, it may also increase the negative consequences if the promised gains fail to materialize. While growth prospects for consumer spending have improved, the new pace of gains may only edge up to a brisk walk, at best.”
Curtin made the comments in reference to Friday’s SC Sentiment Index from Thomson Reuters and the University of Michigan. It marked the sixth consecutive month of increasing consumer optimism about the U.S. economy.
“Unfortunately, too few consumers have benefited from the recent job gains to alter their otherwise grim evaluations of their own finances,” SC analysts say. “Most past recoveries have exhibited the same pattern of optimistic expectations about the economy in advance of personal financial optimism, although the current gap is larger and can be expected to last longer than typical due to the length and depth of the downturn as well as the slow recovery that is anticipated. Overall, the data indicate inflation-adjusted personal consumption expenditures can be expected to grow by 2.3% in 2012.”